Daily Nugget: Mints Running Dry And Asia Keeps Stocking Up

This week will be a busy week in terms of data and central bank meetings. Of all the economic events this week it will be those in the US, namely the FOMC’s decision and Friday’s employment numbers, which those looking to buy gold will be looking out for.

The FOMC decision after Tuesday - Wednesday’s meeting will be affected by expected results from Friday’s non-farm payrolls data. Expect further talk of when the Fed will begin to withdraw some stimulus. Many expect April’s payroll data to come in better than March’s disappointing 88,000 rise (195,000 was expected).

Other key US economic data will be released on Tuesday, namely employment costs, S&P Case-Shiller house prices, Conference Board consumer confidence and Chicago PMI data. Also look out for ADP private-sector employment report and Institute for Supply Management manufacturing PMI on Wednesday and the initial jobless claims on Thursday. All of these will contribute hugely to the FOMC’s view of the US economy’s health, as they decide on QE.

The ECB’s Thursday meeting will yield another key decision to look out for. Economic data from the 17-nation economy has been disappointing – Spain’s unemployment is now at 27%, a record since 1975 whilst across the whole euro area it is 12%. This has prompted many to predict a further cut in the (record-low) 0.75% interest rate. This may be bad for gold given its inverse correlation with the US dollar.

Of course, a reduction in the interest rate isn’t the only event which may see Europe softening their austerity stance. The swearing in of the new Italian Prime Minister may see the new government’s pledges to remove some of the budget-cutting plans come into action. Germany’s push for austerity is coming increasingly under fire as European leaders join international groups, such as the IMF, in calling for more resources (read: money) to be dedicated to economic growth.

Merkel continues to defend austerity, telling bank officials last week: "Growth only on the basis of state financing won’t make us more competitive in Europe."

Physical demand remains key to gold price moves

Keep an eye out for further reports of increased physical gold buying this week. Many will be looking out to see if the pent up demand we saw last week will continue into this week as gold prices continue to recover. Gold climbed 4.2% last week, but still stands to have fallen by over 8% this month.

The US Mint reports that April sales have reached over 203,500 for the month so far, the highest amount since December 2009 when the spot price was $1134/oz. Last week they ran out of their smallest American Eagle coin.

The Perth Mint is the latest physical bullion seller to come out and comment on record sales in the last month. Sales Director, Peter Currie, is quoted as saying that sales have doubled: "We’re racing to try and get out as much stock out as we can," not just to Australian demand but also to India, Thailand and China.

According to Currie, there is a greater demand for bullion products, namely the kangaroo one ounce-coin and bar, than there are for numismatic coins. The Istanbul Mint is also seeing delays in coin deliveries, whilst the UK Mint has seen demand triple.

Gold continues to move from West to East

The gold price fall came at a perfect time for Indian buyers as it’s now wedding season which sees a lot of physical demand. Demand in India is now so high that premiums have increased to five times the level seen prior to the gold price drop.

Other Asian economies also saw huge physical demand, although some traders are warning that we may see a pull-back as China’s three day Labour Day holiday happens this week.

China is the world’s second-biggest gold buyer and some analysts warn that this loss of demand, due to the holiday, in the market may see some big players begin to sell. The lack of trading on the Shanghai Gold Exchange, and generally in China, may reduce support for the market.

HSBC revise gold forecast downwards

On Friday HSBC revised their 2013 gold forecast to $1,542, down by 10% and reduced their silver outlook to $26. They believe the ‘bulk of liquidation has occurred’ and that a large proportion of the market ‘still has a buy and hold trading strategy.’

The bank did acknowledge central bank buying as a key driver of the gold price, and said that the fall in price had not distracted "from what appears to be a long-term policy of gold accumulation…they are less concerned about potential price appreciation and are more attracted to bullion."

Disclaimer: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.